Thursday, 22 September 2011

The Poor are Getting Richer

There is a global long term trend of wealth creation and the common misconeption is that it is only making the world's wealthiest even richer. Whilst it is true that the rich are getting richer, the poor are not getting poorer. Generally speaking the poor are getting wealthier over the long term and despite some recent large economic wobbles the wealth creation machine is still firing across most of the world.

Poverty as is a huge problem and is a long way from being solved. However in countries known for having large populations of people living in poverty, the improvements are encouraging. Take Brazil, a country known for a huge wealth divide, according to IPEA those living in extreme poverty halved in just 5 years to 2008. In that period those labeled as 'middle class' increased by 10% which in turn has increased consumption and expanded access to credit fueling further economic growth. India's growth has also been driven by an expanding middle class and those living below the poverty line has halved over the last 20 years.

Similar statistics can be found for most developing countries and with it comes consumption of covetted products such as mobile phones, consumer electronics and cars. This consumption has some far reaching implications for other problems, most notably global warming but certainly debunks the myth that the poor are getting poorer. This certainly needs to be addressed and there is still a long way to before poverty is defeated - India aims to have eradicted poverty by 2020 which seems unlikely but no doubt progress will have been made.   

From an investment point of view I put a lot of faith in robust long term trends and their implications. In this case of the growing middle classes the desirable global brands should continue to thrive. Apple have seen unbelievable growth in the last decade but there are still huge markets in the developing world that are relatively untapped. The luxury goods market has also continued to expand - most of these brands are from the US or Europe where domestic consumption has been slow, however global consumption has more than comensated for it.

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